Scotiabank's Daniel Chan Says Qualcomm Restructuring Should Help Long-Term Investors

QUALCOMM, Inc. QCOM beat earnings and revenue expectations on Wednesday evening, aided by lower taxes. However, guidance for the full year was trimmed again, as the headwinds from Samsung and China continue to impact more than expected.

Going forward, the tech company is planning to reduce its spending by $1.1 billion, or 15 percent, relative to fiscal 2015. In a report published Thursday, Scotiabank analysts Daniel Chan and John MaGee look into the company, post-earnings, and conclude that this restructuring should support the bottom line.

A Closer Look

This restructuring implies that “QCT operating margins will move to 16% by the end of the year.” The experts forecast this will support earnings through fiscal 2016, and think that, if the company manages to win the GS7 socket, investors will probably see upside.

In fact, the firm believes all the company needs is time. Over the longer-term, they believe, Qualcomm will overcome the near-term challenges. The analysts think “the QCT issues can be fixed during the next product cycle and that the royalty business still has a long runway to grow given that the majority of global mobile subscribers are still on 2G technology.”

Finally, the experts emphasize the importance of the company’s capital return program for the shares.

Scotiabank maintains a Sector Outperform rating and $75.00 12-month price target on the stock. “Investors looking for short-term gains will likely need to look elsewhere, but we'd recommend investors with a longer-term horizon to accumulate on any weakness,” the analysts conclude.